What
China’s checkbook diplomacy means for Europe
The
Asian superpower is poised to divide and rule Europe.
By PHILIPPE LE
CORRE 5/12/16, 5:35 AM CET
While much has been
made of Europe’s deepened state of crisis and the Obama
government’s turn away from the United States’ historic ally, one
country is investing more, not less, in the Old Continent: China.
Chinese President Xi
Jinping’s March 2016 Czech Republic visit was a perfect display of
the country’s strategic decision to cozy up to Europe. The feeling,
it turns out, is mutual.
China chose Prague
for its first bilateral summit with an East European country in 20
years, when the Czech government expressed goodwill toward “One
Belt, One Road,” a centerpiece of China’s foreign policy focused
on building infrastructure networks. With new €4 billion
agreements, China became the Czech Republic’s largest trading
partner outside the EU.
And the Czech
Republic is far from the only European country eager to do business
with China. Hungary, Slovakia, Poland, Romania and Bulgaria have all
declared themselves willing to develop stronger economic ties.
In late 2015, Serbia
and Hungary engaged in separate deals with government-backed Chinese
investors for a 350 kilometer Budapest-Belgrade high-speed railway
project. Serbia — cash-strapped, largely deindustrialized and in
need of investment in infrastructure — has welcomed Chinese
external funds to make up for what a commentator calls “local and
EU capital shortages.”
Next month, it will
be Belgrade’s turn to host Xi. In Eastern Europe, Chinese
investment, it seems, may be a faster way to get at much-needed cash.
* * *
China’s checkbook
diplomacy is on the rise. In the past, European countries competed
for a share of the Chinese consumer market. Now they compete for
Chinese capital.
Beijing’s
leadership first started encouraging companies to branch out to the
West more than 15 years ago. But business with Europe only took off
during the 2008 euro debt crisis, when former Chinese Premier Wen
Jiabao offered to buy eurobonds and help indebted countries such as
Greece and Portugal. The move helped paving the way for major Chinese
state-owned investors such as COSCO (China Ocean Shipping Company),
the shipping giant now running the Piraeus port in Athens, or grid
giant Three Gorges Corp, in the first of a series of sales of
state-owned assets under the Portuguese austerity program.
The U.K. now
considers itself one of China’s best friends in the West, but the
June 23 Brexit referendum is causing concern among Chinese investors.
While China’s
relations with the United States and some of its Asia-Pacific allies
(Japan in particular) became tense, Europe didn’t seem to care very
much about strategic issues like the South China Sea or
cybersecurity.
In fact, individual
European countries were openly “cash hungry” — which suited
China, with its $3.5 trillion in foreign reserves and powerful
sovereign fund.
So, what is in it
for China? Put simply, China needs Europe. Western public opinion
still generally mistrusts the Beijing regime. Part of the reason
China so desperately wants to develop European partnerships is to
rectify this image. This is particularly true in Germany, China’s
most important European economic partner, and the U.K., the EU’s
top recipient of Chinese foreign direct investments.
Their strategy seems
to be working. According to Pew Research Center, in 2015, 34 percent
of Germans had a positive opinion of China, compared to 28 per cent
in 2014. In the U.K., the favorability rate rose to 45 percent.
Xi’s state visit
to the U.K. last October checked off all of the Chinese leadership’s
favorite boxes: Xi joined the Queen for a ride in the royal carriage,
stayed at Buckingham Palace, addressed both houses of Parliament, and
presided over several major business deals.
The U.K. now
considers itself one of China’s best friends in the West, but the
June 23 Brexit referendum is causing concern among Chinese investors.
Their real target is not just the British market, but the European
one.
Until now, China’s
relationship to the EU had been mainly about trade — China is the
EU’s second largest trading partner, after the United States. Now,
Beijing and Brussels increasingly use the term “partnership” to
define their relationship, and the 2015 EU-China summit in Brussels
took up new areas of concern, promising cooperation on security and
terrorism.
The Chinese
government has also been more vocal about European politics: As the
European Commission and the Chinese government signed a joint summit
declaration, Premier Li Keqiang publicly expressed a wish that Greece
remain in the eurozone. In London, Xi commented that the U.K. was an
important member of the EU and “could play a more positive and
constructive role in promoting in-depth development of China-EU
relations.”
Statements like
these are highly unusual for leaders of a regime that officially
states it “does not interfere in other countries’ politics.”
Beijing has made it clear that it cares a great deal about its
relationship with the Europeans, especially as the EU is debating
whether or not to grant market economy status to China.
* * *
There is a clear
interest for China to invest in European infrastructures, either
through acquisitions, equity or as a partner through the €315-billion
European Fund for Strategic Investments. China may become the largest
non-EU contributor to the “Juncker Plan,” which fits well with
Beijing’s own idea of a global infrastructure network. In Europe’
current context and identity crisis, it remains to be seen if the
dots can be connected between Brussels and Beijing.
China has already
been successful in Greece, where it quickly moved into the
infrastructure sector in 2008 and where its investment in Piraeus
port ranks as one of the most successful Greek privatizations in
recent decades. Using Athens as a logistical base will now open up
new possibilities for Chinese companies to send their products by
train to Central Europe and the Balkans, as well as countless
prospects in the Mediterranean sea.
European leaders
need to show the union’s strengths and values when dealing with the
former Middle Kingdom.
Meanwhile, life has
become much harder for European businesses in China, according to the
EU Chamber of Commerce in China, which has published incendiary
reports stressing the disequilibrium in market access at the expense
of European companies in China, which suffer from “disproportionately
restrictive rules.”
Hashing out a new
China policy will be a challenging task as Chinese companies and
cash-rich government entities spread their influence across Europe.
But unless EU member countries can agree on a common policy, the
relationship between a weakened Europe and an increasingly assertive
China risks becoming increasingly unbalanced.
In the interests of
smaller member countries, and of the EU as a whole, European leaders
need to show the union’s strengths and values when dealing with the
former Middle Kingdom. This is the only way Europeans can achieve a
balanced relationship with China.
Philippe Le Corre is
a visiting fellow at the Brookings Institution in Washington, D.C.,
and author of the newly released book “China’s Offensive in
Europe” (Brookings Institution Press, 2016).
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